The road back from China

Back in the first quarter, I reported on the government plans to reboost industry, one measurable objective being to increase industrial output by 25% by 2015.

One of the measures announced was to provide ’support’ to entice French companies having offshored production to bring it back into the country. 20% of the billion or so euros available have been set aside between now and 2013 to provide financial incitations to bring back the work.

Last week, the first company to benefit from these measures was announced. A foundary, Loiselet, in the north of France had transferred production to China some years ago as environmental restrictions had limited its potential for expansion. The return on investment however was offset by the transports costs (one would have thought that this may have been calculatable beforehand?) and the government offer of a reimbursable loan was sufficient for them to decide to transfer back, and invest 12m euros in the French site.

The qualifying criteria? You need to be a company of less than 5000 employees, have a project of more than 5 million euros, and commit to creating and keeping at least 25 jobs for the next three years. The aim is to create 2000 jobs over the next few years – which needs to be put in the context of the 2m industrial jobs which have disappeared over the past 30 years, but it is hoped that the success of the measures will provide a springboard for others to follow suit under their own steam.

There are, as is the norm in France, those who dispute the real value of the measure, and claim that companies are starting to come back anyway. A furniture manufacturer, Majencia, transferred production to China in 2000. Theoretically, there was a 20% cost advantage in doing so, but this was soon reduced to 10% due to the extra logistics costs (another lack of foresight?). In 2006, the work was transferred back after an agreement with the works councils that the remaining 10% difference could be cancelled out by productivity improvements. Atol, a network of optical centres, had to transfer production to China in 2003 as there were no French companies prepared to take on the small batch sizes of spectacles to be manufactured. It’s now all coming back (what a difference a financial crisis makes) and the opportunity taken to work with local manufacturers on providing innovative products, which was not possible when the suppliers were oceans away.

A form of protectionism it may be, but the French government is showing the way, and hopefully more companies will be jumping on the return-trip bandwagon over the next few months.